Decentralization as a determinant of health care expenditure: empirical analysis for OECD countries

Abstract

Territorial decentralization involves the transfer of responsibilities from a central government to lower levels of government. A common trend in different developed countries has been to decentralize some health functions (managerial and/or financial) to local governments. The set-up of the health care system and its degree of decentralization are here utilized in a panel data analysis as a determinant of health care expenditure in a sample of 20 Organization for Economic Co-operation and Development (OECD) countries for the period 1990 to 2000. These findings lend support that demographic, supply-related and socio-economic factors impact on overall health care costs and a decentralized health care setting implies higher health expenditure.

Notes

¹ Visiting scholar at Tilburg University, Department of Econometrics, The Netherlands

² Countries included in the econometric analysis are the following: Australia, Austria, Belgium, Canada, Denmark, Germany, Greece, Finland, France, Ireland, Italy, Luxembourg, The Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom. This sub-sample of OECD countries was chosen because of better availability and quality of data.

³ Note that since 2002 Norway underwent a major reform in the organization of its health care system. Prior to the reform, Norway had a main centralized funding system and a highly decentralized management of health responsibilities, which were attributed to the counties. After the reform Norway has removed responsibilities from the counties to large health regions run by boards appointed by the Minister of Health.

⁴ Italy experienced an important reform in the health sector in the late 1990s that called for decentralization of health affairs. This change is gradually moving funding responsibilities from the centre to the regional governments. It is believed that by assigning financial responsibilities to regions future soft-budget constraint problems should be avoided.

⁵ Spain is a peculiar country because the process of devolution of health responsibilities to the autonomous communities (AC) lasted about 20 years. This process has reached its end in 2002. Before 2002 Spain was characterized by an ‘asymmetric federalism’. Some AC had complete authority over health matters; other AC did not. Spain has been catalogued as a centralized country for the period 1990 to 2000 because devolution was a piecemeal process and took considerable time and effort to take place. The way in which responsibilities were given to AC varied considerably and this generated high confusion in the overall system (European Observatory, 2000).

⁶ For a comprehensive review of international studies investigating the determinants of health care expenditure please refer to Gerdtham et al . (1998), Hitiris and Posnett (1992) and Gerdtham et al . (1992).

⁷ The OECD Health Data 2004 collects data of people aged under 14 and under 19 years. A19 was chosen in order to identify the effect of teenagers on total health care expenditure.

⁸ The OECD Health Data 2004 collects data of people aged over 65 and over 80 years. A80 was chosen in order to identify the effect of old-old adults on total health care expenditure.

Additional information

Notes on contributors

Ilaria Mosca1

1 Visiting scholar at Tilburg University, Department of Econometrics, The Netherlands